Monopolistic Competition. Chapter 17

Size: px
Start display at page:

Download "Monopolistic Competition. Chapter 17"

Transcription

1 Monopolistic Competition Chapter 17

2 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic Competition Perfect Competition Tap water Tennis balls Novels Wheat Cable TV Crude oil Movies Milk

3 Types of Imperfectly Competitive Markets Monopolistic Competition Many firms selling products that are similar but not identical. Oligopoly Only a few sellers, each offering a similar or identical product to the others.

4 Monopolistic Competition Markets that have some features of competition and some features of monopoly.

5 Attributes of Monopolistic Competition Many sellers Product differentiation Free entry and exit

6 Many Sellers There are many firms competing for the same group of customers. Product examples include books, CDs, movies, computer games, restaurants, piano lessons, cookies, furniture, etc.

7 Product Differentiation Each firm produces a product that is at least slightly different from those of other firms. Rather than being a price taker, each firm faces a downward-sloping demand curve.

8 Free Entry or Exit Firms can enter or exit the market without restriction. The number of firms in the market adjusts until economic profits are zero.

9 Monopolistic Competitors in the Short Run... Price (a) Firm Makes a Profit MC ATC Price Average total cost Profit MR Demand 0 Profitmaximizing quantity Quantity

10 Monopolistic Competitors in the Short Run... Price (b) Firm Makes Losses MC ATC Losses Average total cost Price Demand MR 0 Lossminimizing quantity Quantity

11 Monopolistic Competition in the Short Run Short-run economic profits encourage new firms to enter the market. This: Increases the number of products offered. Reduces demand faced by firms already in the market. Incumbent firms demand curves shift to the left. Demand for the incumbent firms products fall, and their profits decline.

12 Monopolistic Competition in the Short Run Short-run economic losses encourage firms to exit the market. This: Decreases the number of products offered. Increases demand faced by the remaining firms. Shifts the remaining firms demand curves to the right. Increases the remaining firms profits.

13 The Long-Run Equilibrium Firms will enter and exit until the firms are making exactly zero economic profits.

14 A Monopolistic Competitor in the Long Run... Price MC ATC P=ATC 0 MR Profit-maximizing quantity Demand Quantity

15 Two Characteristics of Long- Run Equilibrium As in a monopoly, price exceeds marginal cost. Profit maximization requires marginal revenue to equal marginal cost. The downward-sloping demand curve makes marginal revenue less than price.

16 Two Characteristics of Long- Run Equilibrium As in a competitive market, price equals average total cost. Free entry and exit drive economic profit to zero.

17 Monopolistic versus Perfect Competition There are two noteworthy differences between monopolistic and perfect competition excess capacity and markup.

18 Excess Capacity There is no excess capacity in perfect competition in the long run. Free entry results in competitive firms producing at the point where average total cost is minimized, which is the efficient scale of the firm.

19 Excess Capacity There is excess capacity in monopolistic competition in the long run. In monopolistic competition, output is less than the efficient scale of perfect competition.

20 Excess Capacity... (a) Monopolistically Competitive Firm (b) Perfectly Competitive Firm Price Price MC ATC MC ATC P Excess capacity Demand P = MC P = MR (demand curve) Quantity produced Efficient scale Quantity Quantity= Efficient produced scale Quantity

21 Markup Over Marginal Cost For a competitive firm, price equals marginal cost. For a monopolistically competitive firm, price exceeds marginal cost.

22 Markup Over Marginal Cost Because price exceeds marginal cost, an extra unit sold at the posted price means more profit for the monopolistically competitive firm.

23 Markup Over Marginal Cost... (a) Monopolistically Competitive Firm (b) Perfectly Competitive Firm Price Price Markup MC ATC MC ATC Marginal cost MR Demand P = MC P = MR (demand curve) Quantity produced Quantity Quantity produced Quantity

24 Monopolistic versus Perfect Competition... (a) Monopolistically Competitive Firm (b) Perfectly Competitive Firm Price Price Markup MC ATC MC ATC Marginal cost P = MC P = MR (demand curve) MR Demand Quantity produced Efficient scale Quantity Quantity produced = Efficient scale Quantity Excess capacity

25 Monopolistic Competition and the Welfare of Society Monopolistic competition does not have all the desirable properties of perfect competition.

26 Monopolistic Competition and the Welfare of Society There is the normal deadweight loss of monopoly pricing in monopolistic competition caused by the markup of price over marginal cost. However, the administrative burden of regulating the pricing of all firms that produce differentiated products would be overwhelming.

27 Monopolistic Competition and the Welfare of Society Another way in which monopolistic competition may be socially inefficient is that the number of firms in the market may not be the ideal one. There may be too much or too little entry.

28 Monopolistic Competition and the Welfare of Society Externalities of entry include: product-variety externalities. business-stealing externalities.

29 Monopolistic Competition and the Welfare of Society The product-variety externality: Because consumers get some consumer surplus from the introduction of a new product, entry of a new firm conveys a positive externality on consumers.

30 Monopolistic Competition and the Welfare of Society The business-stealing externality: Because other firms lose customers and profits from the entry of a new competitor, entry of a new firm imposes a negative externality on existing firms.

31 Advertising When firms sell differentiated products and charge prices above marginal cost, each firm has an incentive to advertise in order to attract more buyers to its particular product.

32 Advertising Firms that sell highly differentiated consumer goods typically spend between 10 and 20 percent of revenue on advertising. Overall, about 2 percent of total revenue, or over $100 billion a year, is spent on advertising.

33 Advertising Critics of advertising argue that firms advertise in order to manipulate people s tastes. They also argue that it impedes competition by implying that products are more different than they truly are.

34 Advertising Defenders argue that advertising provides information to consumers They also argue that advertising increases competition by offering a greater variety of products and prices. The willingness of a firm to spend advertising dollars can be a signal to consumers about the quality of the product being offered.

35 Brand Names Critics argue that brand names cause consumers to perceive differences that do not really exist.

36 Brand Names Economists have argued that brand names may be a useful way for consumers to ensure that the goods they are buying are of high quality. providing information about quality. giving firms incentive to maintain high quality.

37 Summary A monopolistically competitive market is characterized by three attributes: many firms, differentiated products, and free entry. The equilibrium in a monopolistically competitive market differs from perfect competition in that each firm has excess capacity and each firm charges a price above marginal cost.

38 Summary Monopolistic competition does not have all of the desirable properties of perfect competition. There is a standard deadweight loss of monopoly caused by the markup of price over marginal cost. The number of firms can be too large or too small.

39 Summary The product differentiation inherent in monopolistic competition leads to the use of advertising and brand names. Critics of advertising and brand names argue that firms use them to take advantage of consumer irrationality and to reduce competition.

40 Summary Defenders argue that firms use advertising and brand names to inform consumers and to compete more vigorously on price and product quality.

2007 Thomson South-Western

2007 Thomson South-Western Monopolistic Competition Characteristics: Many sellers Product differentiation Free entry and exit In the long run, profits are driven to zero Firms have some control over price What does the costs graph

More information

Many sellers: There are many firms competing for the same group of customers.

Many sellers: There are many firms competing for the same group of customers. Microeconomics 2 Chapter 16 Monopolistic Competition 16-1 Between monopoly and perfect Competition One type of imperfectly competitive market is an oligopoly, a market with only a few sellers, each offering

More information

Monopolistic Competition

Monopolistic Competition 16 Monopolistic Competition PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Monopolistic Competition Imperfect competition Between perfect competition and monopoly Oligopoly

More information

Monopolistic Competition

Monopolistic Competition CHAPTER 16 Monopolistic Competition Goals in this chapter you will Examine market structures that lie between monopoly and competition Analyze competition among firms that sell differentiated products

More information

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

The competition in monopolistically competitive markets is most likely a result of having many sellers in the market. Chapter 16 Monopolistic Competition TRUE/FALSE 1. The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market. ANS: T 2. The "monopoly" in monopolistically

More information

Economics. Monopolistic Perfect Competition. Monopolistic Competition. Monopolistic Competition 11/29/2013. The Big Picture. Perfect Competition

Economics. Monopolistic Perfect Competition. Monopolistic Competition. Monopolistic Competition 11/29/2013. The Big Picture. Perfect Competition 16 Modified by Joseph Tao-yi Wang Ron Cronovich The Big Picture Chapter 13: The cost of production Now, we will look at firm s revenue But revenue depends on market structure 1. Competitive market (chapter

More information

Economics. Monopolistic Competition. Firms in Competitive Markets. Monopolistic Competition 11/22/2012. The Big Picture. Perfect Competition

Economics. Monopolistic Competition. Firms in Competitive Markets. Monopolistic Competition 11/22/2012. The Big Picture. Perfect Competition 16 Modified by Joseph Tao-yi Wang Ron Cronovich The Big Picture Chapter 13: The cost of production Now, we will look at firm s revenue But revenue depends on market structure 1. Competitive market (chapter

More information

Monopolistic Competition. In this chapter, look for the answers to these questions: Introduction to Monopolistic Competition

Monopolistic Competition. In this chapter, look for the answers to these questions: Introduction to Monopolistic Competition 17 Monopolistic Competition P R I N C I P L E S O F ECONOMICS FOURTH EDITION N. GREGORY MANKIW Premium PowerPoint Slides by Ron Cronovich 2008 update 2008 South-Western, a part of Cengage Learning, all

More information

Economics Sixth Edition

Economics Sixth Edition N. Gregory Mankiw Principles of Economics Sixth Edition 16 Monopolistic Competition Premium PowerPoint Slides by Ron Cronovich In this chapter, look for the answers to these questions: What market structures

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Competition CHAPTER16 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Describe and identify monopolistic competition. 2 Explain how

More information

Principles of Economics. January 2018

Principles of Economics. January 2018 Principles of Economics January 2018 Monopoly Contents Market structures 14 Monopoly 15 Monopolistic competition 16 Oligopoly Principles of Economics January 2018 2 / 39 Monopoly Market power In a competitive

More information

Principles of. Economics. Week 7. Monopolistic competition & Oligopoly. 14 th April 2014

Principles of. Economics. Week 7. Monopolistic competition & Oligopoly. 14 th April 2014 Principles of Economics Week 7 Monopolistic competition & Oligopoly 14 th April 2014 Monopolistic competition In this week, look for the answers to these questions:! What market structures lie between

More information

ECON 200. Introduction to Microeconomics

ECON 200. Introduction to Microeconomics ECON 200. Introduction to Microeconomics Homework 5 Part II Name: [Multiple Choice] 1. A firm is a natural monopoly if it exhibits the following as its output increases: (d) a. decreasing marginal revenue

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Competition 1. In a monopolistically competitive industry, profit-maximizing firms are price a. takers who produce a quantity where price is equal to marginal cost. b. takers who produce a

More information

Monopoly. Basic Economics Chapter 15. Why Monopolies Arise. Monopoly

Monopoly. Basic Economics Chapter 15. Why Monopolies Arise. Monopoly 1 Why Monopolies Arise Basic Economics Chapter 15 Monopoly Monopoly - The monopolist is a firm that is the sole seller of a product (or service) without close substitutes - The monopolist is a price maker

More information

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources Market structures Why Monopolies Arise Market power Alters the relationship between a firm s costs and the selling price Charges a price that exceeds marginal cost A high price reduces the quantity purchased

More information

Monopoly. Cost. Average total cost. Quantity of Output

Monopoly. Cost. Average total cost. Quantity of Output While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

More information

Textbook Media Press. CH 12 Taylor: Principles of Economics 3e 1

Textbook Media Press. CH 12 Taylor: Principles of Economics 3e 1 CH 12 Taylor: Principles of Economics 3e 1 Monopolistic Competition and Differentiated Products Monopolistic competition refers to a market where many firms sell differentiated products. Differentiated

More information

MICROECONOMICS - CLUTCH CH MONOPOLISTIC COMPETITION.

MICROECONOMICS - CLUTCH CH MONOPOLISTIC COMPETITION. !! www.clutchprep.com CONCEPT: CHARACTERISTICS OF MONOPOLISTIC COMPETITION A market is in monopolistic competition when: Nature of Good: The goods for sale are, but not identical - Products are said to

More information

Definition. Is a process by which an individual or a firm predicts future demand for product or products

Definition. Is a process by which an individual or a firm predicts future demand for product or products Demand forecasting Definition Is a process by which an individual or a firm predicts future demand for product or products Accurate forecasting-enables these firms to produce required quantities at the

More information

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly

More information

Chapter 14 Perfectly competitive Market

Chapter 14 Perfectly competitive Market Chapter 14 Perfectly competitive Market But first lets look at this Profit Maximization Profit Maximization This occurs where marginal revenue (MR) = marginal cost (MC). MR = MC Marginal revenue is the

More information

Principles of Microeconomics Module 5.1. Understanding Profit

Principles of Microeconomics Module 5.1. Understanding Profit Principles of Microeconomics Module 5.1 Understanding Profit 180 Production Choices of Firms All firms have one goal in mind: MAX PROFITS PROFITS = TOTAL REVENUE TOTAL COST Two ways to reach this goal:

More information

Price setting problem: Rigidities

Price setting problem: Rigidities Advanced Monetary Theory and Policy EPOS 2012/13 Price setting problem: Rigidities Giovanni Di Bartolomeo giovanni.dibartolomeo@uniroma1.it New Keynesian Economics Most economists believe that short-run

More information

Chapter 6. Competition

Chapter 6. Competition Chapter 6 Competition Copyright 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1-1 Chapter 6 The goal of this

More information

Lecture 12. Monopoly

Lecture 12. Monopoly Lecture 12 Monopoly By the end of this lecture, you should understand: why some markets have only one seller how a monopoly determines the quantity to produce and the price to charge how the monopoly s

More information

MONOPOLISTIC COMPETITION

MONOPOLISTIC COMPETITION 14 MONOPOLISTIC COMPETITION The online shoe store shoebuy.com lists athletic shooes made by 56 different producers in 40 different categories and price between$25 and $850. It offers 1,404 different types

More information

Quiz #5 Week 04/12/2009 to 04/18/2009

Quiz #5 Week 04/12/2009 to 04/18/2009 Quiz #5 Week 04/12/2009 to 04/18/2009 You have 30 minutes to answer the following 17 multiple choice questions. Record your answers in the bubble sheet. Your grade in this quiz will count for 1% of your

More information

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and

More information

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

More information

Monopoly. Chapter 15

Monopoly. Chapter 15 Monopoly Chapter 15 Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly u A firm is considered a monopoly if... it is the sole seller of its product. its product

More information

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester

Eastern Mediterranean University Faculty of Business and Economics Department of Economics Fall Semester Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2016-17 Fall Semester Duration: 110 minutes ECON101 - Introduction to Economics I Final Exam Type A 11 January

More information

Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Economics 6 th edition 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall

More information

Title: Principles of Economics

Title: Principles of Economics Title: Principles of Economics Instructor: Vladimir Hlasny Institution: 이화여자대학교 Dictated: 김은비, 한소영 [0:00] Monopolistic Competition So in chapter 17, we will look at a slightly different market structure.

More information

29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION

29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION Market structure II- Other types of imperfect competition OTHER TYPES OF IMPERFECT COMPETITION Characteristics of Monopolistic Competition Monopolistic competition is a market structure in which many firms

More information

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker.

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly A firm is considered a monopoly if... it is the sole seller of its product. its product does not

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. PRACTICE FOR PERFECT COMPETITION Fatma Nur Karaman MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is the difference between perfect competition

More information

CH 13. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

CH 13. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question. Class: Date: CH 13 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. One requirement for an industry to be perfectly competitive is that a. sellers and buyers

More information

sample test 3 - spring 2013

sample test 3 - spring 2013 sample test 3 - spring 2013 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. A natural monopoly occurs when a. the product is sold in its

More information

Market Structure & Imperfect Competition

Market Structure & Imperfect Competition In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Market Structure

More information

INTRODUCTION ECONOMIC PROFITS

INTRODUCTION ECONOMIC PROFITS INTRODUCTION This chapter addresses the following key questions: What are profits? What are the unique characteristics of competitive firms? How much output will a competitive firm produce? Chapter 7 THE

More information

BS2243 Lecture 9 Advertisement. Spring 2012 (Dr. Sumon Bhaumik)

BS2243 Lecture 9 Advertisement. Spring 2012 (Dr. Sumon Bhaumik) BS2243 Lecture 9 Advertisement Spring 2012 (Dr. Sumon Bhaumik) Why advertise? Building brands Creating markets for new products (scope economies) Price competition / Price protection Barrier to entry Product

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason

More information

Lesson 3-2 Profit Maximization

Lesson 3-2 Profit Maximization Lesson 3-2 Profit Maximization Standard 3b: Students will explain the 5 dimensions of market structure and identify how perfect competition, monopoly, monopolistic competition, and oligopoly are characterized

More information

Chapter 14 Oligopoly and Monopoly

Chapter 14 Oligopoly and Monopoly Economics 6 th edition 1 Chapter 14 Oligopoly and Monopoly Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall 2017 Oligopoly: a very different market structure

More information

Econ 111 2nd MT 16 17

Econ 111 2nd MT 16 17 Econ 111 2nd MT 16 17 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Starting from a situation in which a firm in a competitive market produces and sells

More information

Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics. Spring 2009 ECU Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

More information

Firms in competitive markets: Perfect Competition and Monopoly

Firms in competitive markets: Perfect Competition and Monopoly Lesson 6 Firms in competitive markets: Perfect Competition and Monopoly Henan University of Technology Sino-British College Transfer Abroad Undergraduate Programme 0 In this lesson, look for the answers

More information

Slides and Images, Worth Publishers Inc. 8-1

Slides and Images, Worth Publishers Inc. 8-1 Perfect Competition Michael J. Murray Slides and Images, Worth Publishers Inc. 8-1 Market Structure Analysis By observing a few industry characteristics, we can predict pricing and output behavior of the

More information

iv. The monopolist will receive economic profits as long as price is greater than the average total cost

iv. The monopolist will receive economic profits as long as price is greater than the average total cost Chapter 15: Monopoly (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- Monopolies have no close competitors and,

More information

Problem Set 4 Eco 112, Fall 2011 Chapters covered: Ch. 8 and Ch. 9 (up to slide 15 Price Discrimination) Due date: October 20, 2011

Problem Set 4 Eco 112, Fall 2011 Chapters covered: Ch. 8 and Ch. 9 (up to slide 15 Price Discrimination) Due date: October 20, 2011 Problem Set 4 Eco 112, Fall 2011 Chapters covered: Ch. 8 and Ch. 9 (up to slide 15 Price Discrimination) Due date: October 20, 2011 There are 30 multiple choice questions in this problem set. Answer these

More information

COMPETITION AND MARKETS BEFORE YOU BEGIN. Market Structures. Looking at the Chapter. Date Period. Chapter

COMPETITION AND MARKETS BEFORE YOU BEGIN. Market Structures. Looking at the Chapter. Date Period. Chapter COMPETITION AND MARKETS BEFORE YOU BEGIN Looking at the Fill in the blank spaces with the missing words. Market Structures Perfect Competition sellers product No barriers to entry Price taker Produce where

More information

- pure monopoly: only one seller of a good/service with no close substitutes

- pure monopoly: only one seller of a good/service with no close substitutes Micro 101, Chapter 10 1 Chapter 10: Monopoly Main objectives: 1. Define what constitutes a monopoly - pure monopoly: only one seller of a good/service with no close substitutes 2. Describe types of barriers

More information

Economics 110 Final exam Practice Multiple Choice Qs Fall 2013

Economics 110 Final exam Practice Multiple Choice Qs Fall 2013 Final Exam Practice Multiple Choice Questions - ANSWER KEY Which of the following statements is not correct? a. Monopolistic competition is similar to monopoly because in each market structure the firm

More information

Practice Exam 3: S201 Walker Fall with answers to MC

Practice Exam 3: S201 Walker Fall with answers to MC Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility

More information

Monopoly and How It Arises

Monopoly and How It Arises Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists In which there is one supplier that is protected from competition by a barrier preventing

More information

Figure: Computing Monopoly Profit

Figure: Computing Monopoly Profit Name: Date: 1. Compared to perfect competition: A) monopoly produces more at a lower price. B) monopoly produces where MR > MC, and a perfectly competitively firm produces where P = MC. C) monopoly may

More information

The Four Main Market Structures

The Four Main Market Structures Competitive Firms and Markets The Four Main Market Structures Market structure: the number of firms in the market, the ease with which firms can enter and leave the market, and the ability of firms to

More information

ECON December 4, 2008 Exam 3

ECON December 4, 2008 Exam 3 Name Portion of ID# Multiple Choice: Identify the letter of the choice that best completes the statement or answers the question. 1. A fundamental source of monopoly market power arises from a. perfectly

More information

MARKETS. Part Review. Reading Between the Lines SONY CORP. HAS CUT THE U.S. PRICE OF ITS PLAYSTATION 2

MARKETS. Part Review. Reading Between the Lines SONY CORP. HAS CUT THE U.S. PRICE OF ITS PLAYSTATION 2 Part Review 4 FIRMS AND MARKETS Reading Between the Lines SONY CORP. HAS CUT THE U.S. PRICE OF ITS PLAYSTATION 2 On May 14, 2002 Sony announced it was cutting the cost of its PlayStation 2 by 33 percent,

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. AUBG, Fall 2015, Principles Micro with P. Stankov, Sample MT2 NOTE: The actual no. of questions on the actual MT will be 30, each for 0.67 grade points. MULTIPLE CHOICE. Choose the one alternative that

More information

Imperfect Competition. Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly.

Imperfect Competition. Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Oligopoly Imperfect Competition Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Imperfect Competition Imperfect competition includes industries

More information

Reading Essentials and Study Guide

Reading Essentials and Study Guide Lesson 1 Market Structures ESSENTIAL QUESTION How do varying market structures impact prices in a market economy? Reading HELPDESK Academic Vocabulary theoretical existing only in theory; not practical

More information

Four Market Models. 1. Perfect Competition 2. Pure Monopoly 3. Monopolistic Competition 4. Oligopoly

Four Market Models. 1. Perfect Competition 2. Pure Monopoly 3. Monopolistic Competition 4. Oligopoly Four Market Models 1. Perfect Competition 2. Pure Monopoly 3. Monopolistic Competition 4. Oligopoly Perfect Competition Chapter 14 Perfect Competition Characteristics 1. Very Large Numbers Many buyers/sellers

More information

Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F

Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F C H A P T E R Monopoly Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Vance Ginn & Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved In

More information

FINALTERM EXAMINATION FALL 2006

FINALTERM EXAMINATION FALL 2006 FINALTERM EXAMINATION FALL 2006 QUESTION NO: 1 (MARKS: 1) - PLEASE CHOOSE ONE Compared to the equilibrium price and quantity sold in a competitive market, a monopolist Will charge a price and sell a quantity.

More information

2007 Thomson South-Western

2007 Thomson South-Western BETWEEN MONOPOLY AND PERFECT COMPETITION Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Imperfect competition includes industries in which

More information

JANUARY EXAMINATIONS 2008

JANUARY EXAMINATIONS 2008 No. of Pages: (A) 9 No. of Questions: 38 EC1000A micro 2008 JANUARY EXAMINATIONS 2008 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates

More information

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37 CONTENTS Introduction to the Series iv 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply 17 3 Elasticities 37 4 Government Intervention in Markets 44 5 Market Failure 53 6 Costs of

More information

CHAPTER 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

CHAPTER 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets CHAPTER 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets CHAPTER OUTLINE Perfect competition Demand at the market and firm levels Short-run output decisions Long-run decisions

More information

2010 Pearson Education Canada

2010 Pearson Education Canada What Is Perfect Competition? Perfect competition is an industry in which Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have

More information

CH short answer study questions Answer Section

CH short answer study questions Answer Section CH 15-16 short answer study questions Answer Section ESSAY 1. ANS: There are a large number firms; each produces a slightly different product; firms compete on price, quality and marketing; and firms are

More information

Market Power at Work: Computer Market Revisited

Market Power at Work: Computer Market Revisited Monopolies Part II Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity. Nancy Pearcey Market Power at Work: Computer Market

More information

Monopoly, Oligopoly, and Monopolistic Competition Chapter 8 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Monopoly, Oligopoly, and Monopolistic Competition Chapter 8 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Monopoly, Oligopoly, and Monopolistic Competition Chapter 8 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1. Distinguish among three types

More information

Use the following to answer question 4:

Use the following to answer question 4: Homework Chapter 11: Name: Due Date: Wednesday, December 4 at the beginning of class. Please mark your answers on a Scantron. It is late if your Scantron is not complete when I ask for it at 9:35. Get

More information

Principles of Economics Final Exam. Name: Student ID:

Principles of Economics Final Exam. Name: Student ID: Principles of Economics Final Exam Name: Student ID: 1. In the absence of externalities, the "invisible hand" leads a competitive market to maximize (a) producer profit from that market. (b) total benefit

More information

Chapter 10 Pure Monopoly

Chapter 10 Pure Monopoly Chapter 10 Pure Monopoly Multiple Choice Questions 1. Pure monopoly means: A. any market in which the demand curve to the firm is downsloping. B. a standardized product being produced by many firms. C.

More information

Monopoly CHAPTER. Goals. Outcomes

Monopoly CHAPTER. Goals. Outcomes CHAPTER 15 Monopoly Goals in this chapter you will Learn why some markets have only one seller Analyze how a monopoly determines the quantity to produce and the price to charge See how the monopoly s decisions

More information

Perfect Competition CHAPTER14

Perfect Competition CHAPTER14 Perfect Competition CHAPTER14 MARKET TYPES The four market types are Perfect competition Monopoly Monopolistic competition Oligopoly MARKET TYPES Perfect Competition Perfect competition exists when Many

More information

Economics 101 Section 5

Economics 101 Section 5 Economics 101 Section 5 Lecture #22 April 13, 2004 Chapter 10 Monopolistic Competition Oligopoly Game Theory Monopolistic Competition 3 characteristics of a monopolistically competitive market 1) Many

More information

Chapter 8 Competitors and Competition

Chapter 8 Competitors and Competition Chapter 8 Competitors and Competition Prof. Jepsen ECO 610 Lecture 4 December 6, 2012 John Wiley and Sons Competition If one firm s strategic choice adversely affects the performance of another, they are

More information

Chapter 6: Market Structure

Chapter 6: Market Structure Managerial Economics and Organizational Architecture, 5e Chapter 6: Market Structure McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Market Structure What is a

More information

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 25 Monopolistic Competition

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 25 Monopolistic Competition Roger LeRoy Miller Economics Today Twelfth Edition Chapter 25 Copyright 2004 Pearson Addison Wesley. All rights reserved. Introduction Thomas Jefferson extolled the virtues of allowing individuals to pursue

More information

Ch. 9 LECTURE NOTES 9-1

Ch. 9 LECTURE NOTES 9-1 Ch. 9 LECTURE NOTES I. Four market models will be addressed in Chapters 9-11; characteristics of the models are summarized in Table 9.1. A. Pure competition entails a large number of firms, standardized

More information

I enjoy teaching this class. Good luck and have a nice Holiday!!

I enjoy teaching this class. Good luck and have a nice Holiday!! ECON 202-501 Fall 2008 Xiaoyong Cao Final Exam Form A Instructions: The exam consists of 2 parts. Part I has 35 multiple choice problems. You need to fill the answers in the table given in Part II of the

More information

CH 14: Perfect Competition

CH 14: Perfect Competition CH 14: Perfect Competition Characteristics of Perfect Competition 1. Both buyers and sellers are price takers A price taker is a firm (or individual) who takes the price determined by market supply and

More information

ECONOMICS SOLUTION BOOK 2ND PUC. Unit 6. I. Choose the correct answer (each question carries 1 mark)

ECONOMICS SOLUTION BOOK 2ND PUC. Unit 6. I. Choose the correct answer (each question carries 1 mark) Unit 6 I. Choose the correct answer (each question carries 1 mark) 1. A market structure which produces heterogenous products is called: a) Monopoly b) Monopolistic competition c) Perfect competition d)

More information

Three Rules and Four Models

Three Rules and Four Models Three Rules and Four Models Three Rules: How to find the profit maximizing quantity: A firm will maximize its profit (or minimize its losses) by producing that output at which marginal revenue and marginal

More information

Three Rules and Four Models

Three Rules and Four Models Three Rules and Four Models Three Rules: How to find the profit maximizing quantity: A firm will maximize its profit (or minimize its losses) by producing that output at which marginal revenue and marginal

More information

2013 sample MC CH 15. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

2013 sample MC CH 15. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question. Class: Date: 2013 sample MC CH 15 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Monopolistic competition is identified by a. many firms producing a slightly

More information

23 Perfect Competition

23 Perfect Competition 23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven

More information

Exam 3. Make sure your name, date, section number and Exam 3 appear on the scantron please.

Exam 3. Make sure your name, date, section number and Exam 3 appear on the scantron please. Exam 3 Make sure your name, date, section number and Exam 3 appear on the scantron please. 1. A student might describe information about the costs of production as a. dry and technical. b. boring. c. crucial

More information

Section I (20 questions; 1 mark each)

Section I (20 questions; 1 mark each) Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important

More information

IB Economics Microeconomics Review Mr. Dachpian

IB Economics Microeconomics Review Mr. Dachpian IB Economics Microeconomics Review Microeconomics Review AP Microeconomics Chapter 1: Limits, Alternatives, & Choices IB Economics Chapter 2: The Market System and the Circular Flow Market Economies and

More information

Economics 101 Section 5

Economics 101 Section 5 Economics 101 Section 5 Lecture #21 April 6, 2004 Monopoly Chapter 9 Price discrimination Chapter 10 Monopolistic Competition Oligopoly Game Theory Figure 4 Comparing Monopoly and Perfect Competition Price

More information

MONOPOLY. Characteristics

MONOPOLY. Characteristics OBJECTIVES Explain how managers should set price and output when they have market power With monopoly power, the firm s demand curve is the market demand curve. A monopolist is the only seller of a product

More information

INTI COLLEGE MALAYSIA FOUNDATION IN BUSINESS INFORMATION TECHNOLOGY (CFP) ECO105: ECONOMICS 1 FINAL EXAMINATION: JANUARY 2006 SESSION

INTI COLLEGE MALAYSIA FOUNDATION IN BUSINESS INFORMATION TECHNOLOGY (CFP) ECO105: ECONOMICS 1 FINAL EXAMINATION: JANUARY 2006 SESSION ECO105 (F) / Page 1 of 12 Section A INTI COLLEGE MALAYSIA FOUNDATION IN BUSINESS INFORMATION TECHNOLOGY (CFP) ECO105: ECONOMICS 1 FINAL EXAMINATION: JANUARY 2006 SESSION Instructions: This section consists

More information

Class Presentation for March 29 & 31, Chapter #25

Class Presentation for March 29 & 31, Chapter #25 ECO 2220, Principles of Microeconomics - Section 1C Class Presentation for March 29 & 31, 2016 Chapter #25 Copyright 2014 Pearson Education, Inc. All rights reserved. 25-1 Courage doesn't always roar,

More information

Microeconomics Exam Notes

Microeconomics Exam Notes Microeconomics Exam Notes Opportunity Cost What you give up to get it Production Possibility Frontier Maximum attainable combination of two products (Concept of Opportunity Cost). Main Decision Makers:

More information

Oligopoly and Monopolistic Competition

Oligopoly and Monopolistic Competition Oligopoly and Monopolistic Competition Introduction Managerial Problem Airbus and Boeing are the only two manufacturers of large commercial aircrafts. If only one receives a government subsidy, how can

More information